The Federal Student Loan Program That Could Cost Taxpayers Over $100 Billion

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A program designed to ease the burgeoning student debt crisis has cost the federal government tens of billions of dollars more than originally projected. And according to a new report by the Government Accountability Office, the program will likely forgive at least $108 billion of student debt in the coming years.

The GAO found that the Department of Education’s Direct Loans in Income-Driven Repayment (IDR) plans have cost the government at least $28 billion more in operating expenses between 2009 and 2016 than originally estimated.

That is twice the original projection and reflects a massive surge in interest among young people and their families who have been struggling to repay their student loans. In the current 2017 fiscal year that began Oct. 1, the program’s cost to the federal government is expected to reach $74 billion, far more than originally anticipated.

The report also highlights for the first time the huge cost of the loan-forgiveness provisions of the program, a key element of the Obama administration’s strategy for helping Americans struggling with student loans. Currently, over 30 million student loan borrowers hold more than $900 billion in federal government direct loans. During the worst of the Great Recession in 2009, Congress and the Obama administration instituted a number of IDR programs tailored to ease debt burden by determining loan payments as a percentage of a borrower’s income, extending repayment periods from the routine 10 years up to 25 years, and even forgiving the remaining debt after that longer period.

Nearly 5.3 million people, or a quarter of borrowers, have chosen to repay their student loans through IDR plans – triple the number three years ago. The GAO report warns that the loan forgiveness feature is becoming a serious drain on the program, and that $108 billion of the $352 billion in student loans to be repaid under the IDR plans will be forgiven eventually.

What’s more, nearly 20 percent of Direct Loan borrowers were delinquent on their loan payments at the end of 2015, and more than a million borrowers defaulted on their loans throughout fiscal 2015.

The report was highly critical of the Education Department’s handling of program loan program data. It criticized agency officials for their flawed assumptions and program participation projections that prevented Congress from grasping the full costs associated with the program.

“At a time when our nation is facing a mammoth national debt, the Department of Education has expanded a student loan program that will cost twice as much as originally estimated,” said Senate Budget Committee Chair Mike Enzi (R-WY), a staunch critic of the program who commissioned the GAO study.

Enzi in a statement accused the Obama administration of “manipulating the terms of the student loan program” without the consent of Congress and of “shirking its statutory duty” to carefully assess the cost implications of those changes. He threatened to seek changes in federal credit reform legislation to assure greater transparency in the program.

The Obama administration and other supporters of the plan say it is crucial in helping unemployed or financially strapped young college graduates and their families survive the burden of unpaid student debt and reducing the rate of default. In April, the administration announced a new goal of adding two million new borrowers to the IDR plans over the coming year, primarily through targeted outreach.

Student loan debt hit historic levels in recent years and constitutes one of the biggest problems confronting millions of families. About 44 million borrowers owe roughly $1.2 trillion in student debt, according to figures compiled by the New York Federal Reserve Bank. The average graduate of the Class of 2016 is saddled with $37,171 in student debt, an increase of six percent from the year before.

Many college graduates have complained that student debt has hung over them for years and has frequently dictated important decisions in life, such as whether to buy a house or get married.

The overall government loan program totals $1.26 trillion of outstanding debt and includes privately issued loans that are backed by the federal government, according to The Wall Street Journal. These government loan programs have been profitable until now. But the GAO report warns that revenues will continue to decline as the government steps up the use of income-based repayment formulas and loan forgiveness.

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.